Life is uncertain! You may plan to purchase a life insurance policy thinking that you will have a stable income and your financial situation will not change much. However, as obvious as it may sound, life is unpredictable at its best. Any unavoidable situation can make you withdraw your insurance policy, even though that means losing out on various benefits the policy has to offer.Read more
The truth is, life is precious than money. So, we understand you may have your reasons for LIC premature withdrawal after 5 years. However, it comes with several implications. Continue reading this article to know more.
Premature withdrawal in any life insurance policy (in this case LIC) implies a policyholder withdrawing his/her policy before maturity. For example, if a policyholder's LIC policy is supposed to mature after 20 years from the date of policy purchase and he/she decides to withdraw his/her policy after 5 years, it will be considered as premature policy withdrawal.
After the policyholder has decided to withdraw his/her LIC policy, he/she can visit the local branch office of LIC (the one from which you bought your policy) and fill out the policy withdrawal form. The form for surrender/ withdrawal can be downloaded from the official website of LIC as well. The form should be completed and sent to the company via its branch.
An insured need to submit the following documents in addition to the policy surrender/withdrawal form:
After all the required documents are provided to the company, the underwriting department will scrutinize the documents. Once clear, the surrender amount will be transferred onto the policyholder's account in approximately 10 days.
As stated above, premature withdrawal of a LIC policy comes with several disadvantages. Mentioned below are the important ones:
It should be noted that if your premiums are paid for more than three years and, because of unexpected circumstances, additional premium payments were not made, your policy will become paid up. The sum assured will decrease.
A paid-up plan is void of the benefits that are added to the policy, such as double accident insurance and critical illness insurance.
For instance, if the policy tenure is 25 years with a sum assured as Rs.10 lakhs and the insured has paid for premiums for five years, then the amount assured of the paid-up policy will be decreased to Rs.2 lakhs. This type of canceled policy is known as a "paid-up" policy.
Premature withdrawal of LIC policy after 5 years is not recommended as you will lose out on several tax benefits, life coverage, and rider benefits. Moreover, you will need to pay more premiums for the same policy if you decide to purchase it in the future. On the other hand, there can be some unavoidable circumstances in your life due to which you have to withdraw your policy. So, it is up to you to but think it through and then make an informed decision.
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^Trad plans with a premium above 5 lakhs would be taxed as per applicable tax slabs post 31st march 2023
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